International Business Environments and Operations 16th Global Edition test b...
Guidebook on inclusive innovation for bop markets final
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Doing Business At Emerging Markets:
Guide For Inclusive Innovation
Aalto University BOP research group
Doing Business at Emerging Markets: Guide for Inclusive Innovation
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Why Go For Emerging Markets?
The engine of the global economy has shifted from industrial countries to emerging economies.
It is predicted that by 2025 six major emerging economies – Brazil, China, India, Indonesia, the
Republic of Korea, and the Russian Federation - will collectively account for more than half of all
global growth.
Expected growth rate for 2012 for India is 6,5 percent for China is 8,5 percent, exceeding the
average growth figures of Europe’s and USA each less than 3 percent.
Latin America economies have also grown fast during the recent years, key driver being Brazil: 7
percent.
African economies area also represent huge growth figures, Sub-Saharan African annual growth
is more than 5percent, with Nigeria’s economy leading the region with its growth at a little over 7
percent.
Over the next 15 years, emerging economies will still collectively expand by an average of 4,7
percent per; more than twice the developed world’s 2,3 percent rate.1
Many emerging markets are large even as stand-alone entities.
1 Sources: World Bank. 2011. Global Development Horizons . World Bank. 2011. Global Economic Prospect report. Many emerging markets are
large even as stand-alone entities.
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Besides exceptional growth figures, emerging markets are a source of innovation (disruptive
innovations):
• Many innovations can be leveraged across several emerging markets: A global opportunity for local
innovations.
• Operations in new environments can also be a catalyst of innovations for the developed markets.
• Emerging markets can be a source of resource efficient innovations, due to the scarcity of such
commodities as water and electricity.
Innovation and innovative capacity are increasing in emerging economies, especially China and
India have invested heavily in R&D.
BOP-business may offer an opportunity for corporate responsibility: Alleviate poverty through
innovative business.
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The Aim Of This Guide
Offer tips for Finnish SMEs interested in emerging markets, particularly serving the so called
Base of the Pyramid (BOP):
• Business opportunities
• Refining one's business model and starting operations
• Tailoring one's products and services for local needs
Give examples of companies, whose operations in emerging markets bring profits and boost
local wellbeing.
Highlight sources of further information.
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Structure Of The Guide
What Is BOP Innovative Designing Methods Of The Finnish References
Business Business Innovating Context
Solutions Models
Basic figures Examples of Criteria’s for BOP market as What BOP offers Written materials
What is the successful products and innovation labs for Finnish Web links
Base of the business services How to gain companies?
Foreign contacts
Pyramid? solutions in Manufacturing understanding of Potential Finnish
different sectors and distribution the local companies
Challenges
creating inclusive Business environment New paths of
business Development Generating ideas innovating
External market R&D activities Finnish network
related Co-creating of actors
constraints
Ecosystem
Organizational
constraints
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About The Emerging Market And Base Of
The Pyramid
Intro
BOP – Neglected business opportunities.
In this chapter we present:
• BOP Business Approach
• Basic Figures
• BOP market sizes
• BOP as a source of Innovation
• BOP as Business environment
• Corporate Challenges for Inclusive Innovation
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Basic Figures
Almost two-thirds of the world’s population, spend €5 per day or less (purchasing power parity
adjusted, i.e. less than 5€ in absolute value). This population constitutes the base of the
economic pyramid (BOP).
Collectively, these consumers represent a huge market: the combined buying power of these 4
billion people is over 5 trillion US dollars.
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BOP Market By Income Segment
BOP market - $5 trillion. Total income by segment:
Explanation: BOP500 category represents !"#&%%%
individuals living with less than $500 a year,
BOP1000 represents individuals earning !"#'$%%
between $500 and $1000, etc. !"#'%%%
!"#($%%
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Source: World Resources Institute: http://www.wri.org/thenext4billion
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People In The Low-income Market Spend Most Of Their Money On Food, Energy, And
Housing
Detailed information on BOP market sizes by sectors
and in different countries, can be found:
The next 4 Billion - Market Size And Business Strategy
At The Base Of The Pyramid (pdf)
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BOP Business Approach
BOP discourse started in the context of the poor living in developing countries or emerging
economies, but has also extended to other underserved markets e.g. the poor of USA.
Like elsewhere, there has to be demand for products and services. In other words, products and
services need to solve some local problem.
Need for innovation: Solutions at and for poor markets call for different products, services,
business models, partnerships and networks than those of the developed markets.
Is not just selling to the poor:
• Include BOP communities in the value adding process of the product,
• Considering the BOP as potential producers, entrepreneurs and innovators
• The composition of BOP markets differs markedly across countries
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BOP As A Source Of Innovation
Underserved market = significant unmet needs
Many people at the base of the income pyramid:
• Have no bank account or access to modern financial services
• Live in informal settlements, with no formal title to their dwelling
• Lack access to water and sanitation services, electricity and basic health care
Offer potential to drive business innovation and growth
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BOP Is A Challenging Business Environment – Solutions Need To Fit The Local Condi-
tions
Dominated by the informal economy, and as a result relatively inefficient and uncompetitive
Poor infrastructure
Lack a robust overall regulatory and legal framework
Fragmented and immature markets and lack of information
Supply chains can be deep and complex, involving legions of contractors and subcontractors
Low disposable incomes limit the amount that consumers can buy at any one time
Lack of knowledge and capacity
Consumers in low-income segments have trouble saving money, given their pressing need for
liquidity
Solutions vary with the local context, which poses challenges for scaling up
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Corporate Challenges For Inclusive Innovation
Besides external market-related barriers, inclusive innovation can be hampered by corporate
management frameworks:
• Short-term profit maximisation, business unit based incentive structures, and uncertainty avoidance.
Inclusive business innovation processes do not conform to these frameworks
• Promoters of inclusive innovations may face shortage of time for the tasks they have, lack of
adequate financing, and lack of access to expertise from within their organisation.
How to overcome constraints by posed by strict corporate frameworks?
• Successful innovators practice “Intrapreneurial bricolage”:
• Dedicated innovators act like entrepreneurs within a large organisation. They ”make do” with
whatever scarce resources are at hand such as substantial amounts of their free time, private-life
networks, or previously discarded technologies.
• These innovators can make creative combinations of these resources in order to promote their
inclusive innovation.
• Occasionally they work underground and even against their superiors’ orders.
Success depends on an organisation's tolerance to intrapreneurial bricolage
Read more: Halme, M, Lindeman, S & Linna, P. 2012. Innovation for Inclusive Business: Intrapreneurial Bricolage in Multinational Corporations.
Journal of Management Studies. 49:4, 661-842
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Innovative Business Solutions
Intro
Although BOP is a challenging business environment, several companies have done successful
business at BOP.
In this chapter we present some business examples
from the following sectors:
• Energy
• Healthcare
• Food
• Water and Sanitation
In the 'Keep in mind' concludes main lessons.
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Successful Business At BOP Is Possible
Nearly 200 business models have been documented so far:
• Initiators range from multinational companies to SMEs, social enterprises and non-governmental
organizations.
'In the following we give examples of these companies:
• OSRAM, a subsidiary of Siemens
• Biogas International
• General Electric ,Healthcare unit
• Lifespring Hospital
• Danone
• Tivisky Dairy
• Vestergaard-FRANDSEN
• Ecofiltro
• Aquatuya
• Water Initiative
More documented business cases can be found, for
example:
• www.growininclusivemarket.org
• www.endeva.org
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Business Models Are Analysed By
Sector How big market opportunities different sectors represent and what are the major societal problems that
business solutions could fix.
Case Basic information about the case company.
Solution Solution to societal problem offered by company program, product or service.
Revenue model Description of the revenue model for the BOP product, service or program, including financing and
profitability (when available).
Outcomes Outcomes of BOP business model, including benefits to the customer, competitive advantage and or
capabilities of the company and financial arrangements/revenue model (when relevant).
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Market Opportunities In The Energy Sector
Worldwide, approximately 2.7 billion people rely on traditional biomass for cooking and heating
and about 1.3 billion have no access to electricity. Up to a billion more have access only to
unreliable electricity networks.
For those at the base of the pyramid, energy poverty is the biggest limiter to improving living
conditions.
Current energy sources, such
as kerosene and firewood are
inefficient, unhealthy, scarce
and expensive. Pollution from
indoor use of fuels such as
kerosene leads to significant
health risks.
Lack of access to energy is a
major barrier to economic and
social progress and must be
overcome to achieve the MDGs
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OSRAM
Case OSRAM, a subsidiary of Siemens has launched a specific Global Care program which is committed to investing in
sustainable programs in emerging markets.
Solution One of OSRAM’s solutions is a photo voltaic power station (OSRAM Energy Hub, O-Hub) which offer local people
battery boxes, LED lanterns, mobile phone chargers, and clean water. This Hub is charged through solar panels that
cover the roof and was built by employing local community people. By partnering with a local organisation,
microfinance funding was offered to help pay for the initial deposit fee.
Revenue model The Hub earns revenues from their products offerings; the recharged battery rental service being the main one
Outcome Since its first pilot in April 2008 in Mbita Kenya, OSRAM has set up around ten hubs in Africa. Despite some
challenges (e.g. giving up LED lanterns, purified water service depends on the amount of rain water), cash flows of
hubs have been positive.
More information Energy Hubs
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Biogas International And Flexible Biogas Digester
Case Kenyan start-up company. One individual innovator-entrepreneur who has developed the technical solution and
created a profitable business around the product.
Solution affordable biogas digester for households and institutions
Revenue model revenue by selling the products directly to individual households or public organizations, like schools
Outcome is setting up an individual sales agents based selling and distribution network across the country
More information www.biogas.co.ke
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Market Opportunities In The Healthcare Sector
Around 1.7 billion people lack access to essential medicines and basic health services
Low-income people may lack awareness of illnesses, their causes and options for treatment
People also may face immense difficulties when in need of treatment: specialist may be a long
distances away, while health care providers in close proximity might be ill-equipped and poorly
skilled
Other problems are, for example inadequate access to formal markets, this may lead to self-
medication; due to poor infrastructure and lack of electricity products might not be stored
properly or cannot be cooled
Nevertheless, event with very limited disposable income, people spend a considerable
proportion of their resources on healthcare and medicines.
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GE (General Electric) Healthcare Unit
Case GE Healthcare is a unit of General Electric, a global manufacturer of aircraft engines, generators and turbines,
locomotives and other transportation equipment, medical imaging equipment, lighting, home appliances, and
electric distribution and control equipment. The BOP market is strategically important both as business opportunities
and as a source of innovations. GE has launched a ‘healthymagination campaign’ aiming to deliver low-cost, quality
products globally and by 2015 expects to launch at least 100 innovations for the BOP market.
Solution MAC 400, affordable and portable ECG machine especially for rural clinics.
Development The ECG machine was developed under strict product development criteria following the normal standard of GE.
process The biggest challenges was not functionality, but bringing the device to market within an affordable price range and
to create a new distribution model.
Revenue model GE accepts lower profit margins than for its other equipment achieving revenues by reaching mass volume market.
It was manufactured by GE’s Indian partner Wipro which used only local suppliers. To reach the rural clinics, GE
partnered with the State Bank of India (SBI) which due to its large network was able to reach rural doctors and clinic
(with no interest-rate) with fast payback time. GE held hundreds of sales pitches to demonstrate the advantages of
the machine and made some strategic donations to drive acceptance and penetration.
Outcome MAC 400 has brought access to ECG equipment's for rural clinics never before Since launched in India in 2002,
MAC 400 has been sold over 100 countries. In addition, GE has launched several other products for BOP market.
More information Getting It Right at the Bottom of the Pyramid - : How GE Healthcare Married Community Needs with Corporate
Imperatives and Birthed a Business Segment and a Movement (pdf)
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LifeSpring Hospitals, India
Problem Public hospitals are bad quality but private hospitals are too expensive for low-income people.
Case Lifespring Hospital is a chain of small hospitals (20-25 beds) providing affordable health care to low-income families,
especially access to maternity and child care services
Its mission is to make quality maternity healthcare affordable and broadly accessible to lower-income women across
India
Revenue model Tiered pricing and a cross-subsidy model
and Solution Three wards and three associated pricing tiers: a general ward, a semi-private ward, and a private ward
The profits from the semi-private and private ward customers subsidize the general ward customers, which are 70
percent of all clients
Keeping operating cost low
Outcomes First hospital was opened in 2005 on the outskirts of Hyderabad in Moula Ali: it broke even and then became
profitable after less than two years of operation
More information LifeSpring Hospitals (pdf)
www.lifespring.in
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Market Opportunities In The Food Sector
The food market (food and beverages) represent the largest BOP market and the largest share
of household expenditures.
Improving distribution to expand access to food and providing better food products are
significant business opportunities.
Opportunities also exist in agriculture which is an essential part of the food value chain and a
major source of employment and income for the BOP.
Accordingly, business strategies that can deliver more value for food expenditures can create
significant market value.
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Milk Start’ - Affordable Milk Porridge, Danone (Poland)
Case The Danone Group is a world leader in the food industry delivering fresh dairy products, beverages, and biscuit and
cereal products.
Problem Thirty percent of children in Poland are undernourished, and their daily food proportion might lack many necessary
ingredients. Danone wanted to create low-cost nutritional food to meet the needs of low-income families
Solution Affordable ‘milk porridge’ made of semolina and milk powder enriched with specially selected vitamins and minerals.
It is easy to prepare by pouring the sachet content into boiled water and stirring. Milk Start is sold in 60 gram single
serving sachets each costing 0,15euros.
Revenue model Success of Milk Start is mainly the result of successful partnership ‘The Partnership for Health’ relating to the
manufacture, packaging, distribution and marketing of the product. Partners were the Institute of Mother and Child,
Lubella S.A, and Biedronka. The Institute of Mother and Child brought their expertise in nutrition, Lubella took care
of producing Milk Start and Biedronka was responsible for distribution and in-store sales while Danone took care of
marketing, public relations and coordinated the partnerships. Danone owns the concept but profits are shared
between the partners.
Outcomes Milk Start was launched on September 2006 and by the end of 2006 more than 1.7 million sachets were sold. Within
Danone, the success of Milk Start has encourage the creation of new ‘nutrition-affordability’ solutions for other
markets and experiences of the partnership taught lessons on innovative business model development.
More information ffordable Milk Porridge for Low-Income Families (pdf)
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Tivisky Dairy Camel Milk Improving Livelihoods (Mauritania)
Case Tiviski is a dairy in Mauritania that processes camel milk into modern, high-quality products.
Problem Mauritania is an arid desert nation where most of the 3million inhabitant live as nomadic livestock herders, keeping
camels, sheep, goats and cows.
Solution Tivisky sources all of its milk from semi-nomadic subsistence herders, enabling them to earn incomes while still
maintaining a traditional lifestyle. The company organized collection centers where herders can deliver their milk and
subsequently transferred to a dairy where it is processed.
Revenue model Around 1000 herders deliver milk to Tiviski’s local collection center from where the milk is transferred for processing.
Tiviski pays suppliers by the litre and sell the final products to retailers. Tiviski also offers support to livestock owners,
such as veterinary care, vaccination and feed.
Outcome Tiviski has enabled poor, nomadic people to earn a living from previously non-productive livestock. The company has
created more than 200 direct jobs and has provided livelihoods for 1000 families.
More information Africa's First Camel Milk Dairy Improves Livelihoods for Semi-Nomadic Herders in Mauritania (pdf)
www.tiviski.com
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Market Opportunities In The Water And Sanitation Sector
More than 2 billion poor people lack access to safe water
• 900 million do not have access to an water source.
• 1.2 billion do have access to an water source, but the water is not safe.
• This has devastating health consequences, causing almost 2.5 million deaths per year of which the
majority are among children less than five years of age.
Possible solutions are:
• Pumping and harvesting
• Installations to pump underground water or collect rain water
• Devices, flasks and tabs
Consumable disinfectant products, mostly chlorine-based distribute in liquid or tablet forms
Durable filtration devices and filters, using different purification technologies
• Plants and kiosks
Mini-water treatment stations: collective installations for more heavily polluted and/or brackish
water, suitable for small towns and villages
• Pipes and taps
Piped distribution networks: collective networks used to transport treated water to homes or
public stand posts (Source: Hystra. Access to safe water for the Base of the Pyramid. 2012)
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Lifestraw As A Product For Safe Drinking Water
Case Vestergaard-Frandsen is a Danish-Swiss firm producing protective textiles.
Solution LifeStraw® is a personal water purification tool to prevent waterborne illnesses such as typhoid, cholera, dysentery
and diarrhoea. There are also LifeStraw Family and Child models. It purifies 700 litres and can be used for about 1
year.
Revenue model Lifestraw is distributed primarily through development organizations which also finance the tubes. Its price is 2€ and
direct sales to users is under planning
Outcomes Lifestraw provides an effective tool to combat waterborne disease for individuals and families living without safe
drinking water.
More information http://www.vestergaard-frandsen.com/
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Ecofiltro – A Clay-based Filter For Households, Guatemala
Case Guatemalan social enterprise that produces an affordable filter, Ecofiltro, to purify contaminated drinking water
Solution Ecofiltro filter provides plentiful filtered water for a family of 6 for $35 a year and replaces the need for bottled water.
Revenue model The company uses a cross-subsidy pricing model: Ecofiltro is sold to urban populations at higher prices and to rural
populations at more affordable price. The distribution network covers NGOs, formal distributions and individual
catalogue saleswomen.
Outcomes Over three years more than 53,000 filters are sold and a new production center was opened in spring 2012 that will
allow business to be replicated in other Central-American countries and beyond.
More information http://ecofiltro.org/
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AGUATUYA, Water For Everyone, Bolivia
Case A Public-Private-Partnership scheme initiate by a local water systems equipment manufacturer.
Solution Partnership finance and installs stand-alone, community-managed minipiper networks in the city’s suburbs. To start,
networks receive water from a tank vehicle, or pump water from a nearby water source which are then later
connected via collective meters to the main municipal water source.
Revenue model Partnership arrangement between the municipality, the community, the main utility and the equipment provider. Works
are financed both by the municipality and the communities and supervised by the main equipment provider
Outcomes Since starting in 2005, it has created 33 mini-networks it has achieved 90 per cent average penetration in areas of
operation.
More information http://www.aguatuya.org/
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The Water Initiative (TWI)
Case The TWI markets customized ‘Point-of-Drinking’ (OPD) water purification devices creating sustainable businesses
with local entrepreneurs
Solution TWI focus on product development using a ‘targeted’ approach and market development by adopting ‘co-created’
business models together with its network of micro entrepreneurs.
Revenue model To distribute its products, TWI operates as a franchising-model: it sells water purifiers for about $150 each to
distributores who then lease them to families for about $3 a week.
Outcomes The company was founded in 2006 and begun its business in Mexico and later expanded to other markets in Latin
America.
More information http://thewaterinitiative.com/
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Keep In Mind
Innovations are not just technological or market breakthroughs: they are changing people’s
lives.
Need to add value to the life of the people: going beyond ‘job-to-be-done’.
Uncompromising quality at a price that is affordable.
Use resources efficiently to keep costs down and for environmental reasons.
Scalable and replicable to suit requirement of local circumstances and complexities.
Integrating the creativity of poor people and the entrepreneurs, who serve them, is key when
designing these innovations.
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Designing Business Models
Intro
In this chapter we discuss what to keep in mind when designing business models.
Tailor Business Models to Fit with the Local Context:
• Product Characteristics
• Adaptation to Infrastructure
• Delivery and distribution
• Localized and collaborative value-chains
• Managing ecosystems
• Scaling up/Diffusing
The Four As
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Tailor Business Models To Fit With The Local Context
Criteria for products and services Manufacturing and distribution Business development
Product Adaptation to Delivery and Localized and Managing ecosystems Scaling up/Diffusing
characteristics Infrastructure distribution collaborative value-
chains
Affordability Design for hostile Efficient delivery Deskilling work Enable innovation (and Investing in raising
Both hi-tech and low- environment (e.g. process processes business) creation in awareness
erratic electricity, dirt collaboration with other
tech solutions Group credit schemes Local actor involvement Leveraging
roads) groups, institutions and
needed experiences
Effective distribution Developing capabilities stakeholders
Hybrids: new
Meeting functional systems
technology in Overcome structural Untypical business
needs
deficient Usable interfaces barriers (such as lack of partners
Simple and infrastructure institutions, e.g. through
Last mile by local Multi-stakeholder
appropriate design conditions the use of partners)
subsistence relationships
Possibility for Tailor and localize entrepreneurs
Common goals
commercial solutions to local
scalability conditions (e.g. Utilization of
different languages, complimentary resources
Resource efficiency
customs) Network assembling and
coordination
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Product Characteristics
Meeting functional needs
Focus on meeting functional needs and services, not just producing more products:
• What is the value-added element of the product or problem that it is solving?
How product might be used:
• Multi-functionality and flexible use: product can be used for several purposes.
• Shared used /access or ownership: several people can use the same product or venture is owned by
group of people.
Flexible use
Simple design:
• easy to use and maintain
• Cost-optimized design
Resource efficiency:
• Use local resources to manufacture and distribute markets.
• Supply parts available locally.
• Environmental impacts
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Adaptation To Infrastructure
Low-quality roads, postal services, electricity, and other basic forms of infrastructure make it
harder and costlier to support production and distribution in many areas.
Hybrid solutions – linking new technology with existing infrastructure – are becoming common in
the BOP environment .
Mobile phone related services are transforming the lives of the BOP people.
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Delivery And Distribution
Focus on delivery process – how to deliver is as important as what to deliver.
Distribution channels can be fragmented or non-existent: simply getting products to people can
be a major hurdle.
Develop distribution systems that reach the BOP (rural, slums, illiterate, e.g. ICICI: PCs, ATMs,
self-help groups, internet kiosk operators).
Many companies work with highly complex distribution systems, comprised of hundreds of
distributors, wholesalers and agents.
Challenge the conventional wisdom in delivery of products & services.
How:
• If possible, use existing traditional places to sell and distribute
• Engage groups in the credit schemes instead of individuals.
• Design interfaces carefully (e.g. biometric based interfaces, fingerprint, icon-based address books in
mobile phones).
• The ”last mile” to the customer can be provided by local subsistence entrepreneurs.
• Example: Unilever’s Shakti Ladies: Hindustan Unilever (HUL) trained women to be Shakti
Entrepreneurs – to work as HUL distributor in small villages: http://www.unilever.com/sustainability/
casestudies/economic-development/creating-rural-entrepreneurs.aspx
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Localized And Collaborative Value-chains
Deskilling work – a trained labor force is lacking in most BOP markets.
Engage local actors and communities to help in the process:
• They have the knowledge and influence
• Understand local social resources as labor force: it will also lower costs
• Developing capabilities of local actors might be needed
• Case: Unilever Indonesia has orchestrated an alternative supply chain for its ‘Kecap Bango’ soy
sauce by constituting a pool of farmers that receive training and financing in order to become
suppliers of black soybean to the company.
http://www.oxfam.org.uk/resources/policy/trade/downloads/unilever.pdf
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The Four As
Requirements for business models are often also described as ‘Four As’
Affordability:
• Products need to match the cash-flows of customers who frequently receive their income on a daily
rather than weekly or monthly basis.
• low priced
• ‘low profit margin-high volume model’ reaching scale
Availability:
• Distribution channels can be fragmented or non-existent: task of simply getting products to people
can be a major hurdle.
• ‘Last mile’ solutions
Acceptability:
• Product/service need to adapted to the local needs of customers and distributors.
Awareness:
• New solutions for how to raise awareness
• Convincing people why they should consume new products/services with which they have had no
previous experience. (Source: Anderson and Markides, 2007)
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Affordability –thinking About Pricing Strategies
Starting point:
• Products should match the cash-flows of customers who frequently receive their income on a daily
rather than weekly or monthly basis.
• Irregular cash flows and no social security if job is lost.
• Not only money, but assets (such as chickens, cows) or skills and knowledge (such as work force)
can also be seen as traders of money.
Pricing strategies:
• Who is the paying customer:
Low-cost for the end user, even offered for free
Third-party payer (Example VF)
Cross-subsidized services (Example, Life Spring Hospitals, presented already)
• Rethinking price points and breaking these into affordable units:
Small-packages (Example: find some photo)
Micro-credit payments
• For big investments:
Utilizing micro-finance
Community-based business ventures/entrepreneurship models
Shared-used/ownership
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Third-party Payer:
Vestergaard Frandsen divides its market for life-saving products into three segments: sales to public agencies (NGOs,
government agencies etc.), social marketing (subsidised sales), and commercial marketing (sales on commercial terms). When
targeting the poorest BOP consumers, Vestergaard Frandsen makes use of a social marketing approach. This mean they sell a
mosquito net at approximately one third of the actual market price while a government institution, humanitarian organisation or
private fund pays the remaining two thirds of the market price. (Source: Danish Industry, 2007)
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Awareness - Marketing Efforts As Raising Awareness And Educating Users
Marketing can be very time consuming as you cannot expect that ‘traditional’ marketing works.
Instead often it is more about raising awareness of your product and services:
• User education: training people on the benefits of the products.
• Creating demand when existing demand is absent or nascent.
Need to consider alternative media channels in areas where access to the press is limited or
where television or radio ownership is not widespread:
• Social marketing: together with NGOs and government assistance organize large public awareness
raising campaigns.
• ‘Seeing is believing’: people don’t buy if they can’t be sure the solution is working.
• ‘Word-of-mouth’: people buy what their family members or friends recommend.
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"Blue Bus" And "Nokia Van"
‘The Blue Bus’, Nicaragua: after Hurricane Mitch the bus went from village to village to train community members in better health
and sanitation practices
http://rainbownetwork.org/2011/05/18/the-blue-bus-a-rewarding-partnership/
Nokia Van, India: Nokia vans were travelling across small villages in India to train people on the benefits of mobile phones
http://images.businessweek.com/ss/07/05/0511_nokia/source/1.htm
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Methods Of Innovating
Intro
In this section we advise how your company can innovate for BOP and gain knowledge on the
business environment by presenting different companies innovating practices for BOP
Innovations Should Serve Local Needs
BOP as a source of Innovation:
• BOP Markets Offer Great Opportunities to Act as Innovation Labs.
Lack of BOP expertise – How to gain understanding of the local environment:
• Examples of Idea Competitions
• Examples: Special R&D centres, business units and campaigns targeted on low-income consumers.
Co-creating Innovations for BOP:
• Example: Designing solutions together with a local partner- networks.
• Example: European SMEs innovating for the BOP.
From partnership arrangements to business and innovation ecosystem creation
• Different roles in the ecosystem
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Innovations Should Serve Local Needs
Companies need to invest resources to gain a deep understanding of the requirements of
customers in low-income markets, which can a challenge.
Understanding of local context is not only needed for developing suitable product or service, but
to create methods on:
• How to deliver services (=accessibility and availability)
• How to raise awareness.
• The key is to be involved in the local environment.
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BOP Markets Offer Great Opportunities To Act As Innovation Labs
Companies can effectively leverage from their knowledge and capabilities to develop potentially
‘disruptive’ innovations that create new market spaces by addressing the unserved or under-
served needs of customers:
• Not minor modifications, but new product and service solutions, and business models and new
innovation practices based on mutual value creation process.
This requires going beyond traditional innovation strategies targeted at developed markets:
• New methods for research on subsistence consumers are necessary.
• A mutual value creation process: Understand the BOP as resource-poor, but talent-rich people.
The traditional roles of the developers, producers, distributors and consumers of products and
services have become intermingled:
• Don’t consider BOP only as customers, but more as potential partners.
Build business models based on the existing strengths:
• Try to recognize and use the local resources.
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Lack Of ‘BOP Expertise’ – How To Gain Understanding Of The Local Environment
Gaining knowledge on what does the customer need and want can be difficult:
• Statistics can be lacking
• Traditional market research methods might not be possible, as people can be illiterate, not used to be
interviewed.
It might demand long-term research efforts to develop an understanding of local needs and
ways of living:
• Consider, for example Ethnographic research, participant, observation.
Crowdsourcing ideas for product development.
Establish special business units that particularly focus on R&D for low-income market:
• Better changes to absorb local needs and expertise into local product development.
• Proximity to customers and suppliers can be a key element in product development.
If the company does not have resources it should establish its own research unit, it can co-
operate with the utilities who are most experienced in serving BOP:
• Local specialist, NGOs, anthropologists
• Co-operation with partners to design solutions to together.
• Engaging with local communities for co-creation purposes.
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Generating Ideas - Idea And Innovation Competitions
If there is interest in the BOP market, generating ideas for products and services is the next
step.
Idea and innovation competitions are commonly organized by several MNCs and international
organizations.
• These can be both internal ‘Innovation Summit’ within the organization, or open to the public.
Develop “cheap” and risk-less way of gaining access to local knowledge and talents and
creating partnerships.
Give visibility to innovations and entrepreneurs.
Finding local partners to begin longer term co-operation together is also possible.
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Examples Of Idea Competitions
Nokia
Purpose! For Nokia role of low-income market is significant and the company has created various ways to search
ideas for new products and services. Besides establishing research centers in several countries (for
example in India and Kenya), Nokia organizes several idea and innovation competitions for generating
ideas on how to serve BOP better.
More information! IdeaCrowdSourcing: http://www.ideasproject.com/community/en/m2work
Growth Economy Venture Challenge: http://www.callingallinnovators.com/venture_challenge.aspx
Open Studio concept: http://janchipchase.com/content/essays/nokia-open-studios/
SIDA (Swedish International Development Cooperation Agency) ’Innovations Against Poverty’
Purpose! SIDA’s ’Innovation Against Poverty’ –program has various activities on encouraging market-based
solutions for poverty.
More information! About SIDA: http://www.sida.se/English/Partners/Private-sector/Innovations-against-poverty/
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Within Companies
Purpose! Several companies have launched their own idea and innovation competitions for their employees. The
aim is to generate ideas for inclusive businesses and strengthen the knowledge on the BOP among the
employees.
More information! For example Vodafone has its own internal challenge fund support innovative ideas and has dedicated business
units to help capitalize on opportunities for inclusive business such as mobile payments in health.
# Siemens sees their employees as value resources due to their creativeness and expertise. In 2007 challenges
‘Safe Water Kiosk’ was awarded first price and later on it was launched successfully.
Dell Social Innovation Challenge
Purpose! The Dell Social Innovation Challenge identifies and supports promising young social innovators who
dedicate themselves to solving the world’s social issues with their own ideas.
More information! http://www.g20challenge.com/
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G20 Challenge On Inclusive Business Innovation
Purpose! The challenge seeks to recognize businesses with innovative, scalable and commercially viable ways of
working with low-income people.
More information! www.dellchallenge.org
MIT’s Global Innovation Challenge Targeting BOP
Purpose! The Challenge enables MIT students, alumni, faculty, staff, and their collaborators anywhere to connect,
define problems, and develop solutions.
More information! http://globalchallenge.mit.edu/
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Examples: Special R&D Centers, Business Units And Campaigns Targeted On Low-
income Consumers
Novartis
‘Arogya Parivar’ social business model in India
The company invested considerable time to understand the local context
Ended up creating separate business model targeting the health needs of rural populations at the BOP ‘Arogya Parivar’
Its a network of community health educators, who help promote disease awareness among villages. Arogya also organizes
health camps and distributes drugs in rural pharmacies
Novartis also has ‘Novartis Institutes for Developing World Medical Research’ which conduct pro bono research on severe
diseases
More information# Achieving the UN Millennium Development Goals - The contribution of Novartis (pdf)
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Danone:
Danone receives more than half of its global revenues from emerging markets. Although not establishing special R&D centres in
emerging countries, it is planning to increase the strength of their research and development employees. In addition, it has also
launched social business projects in India and Bangladesh:
More information# http://articles.economictimes.indiatimes.com/2011-09-03/news/30110245_1_danone-india-french-food-giant-
jochen-ebert
Danone communities, network of social businesses: Affordable Food for Low-Income Consumers
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Philips
Philips has designed hundreds of products for the BOP market. Philips is approaching the BOP market segment in several ways:
BOP Programme together with Manipal University (Karnataka, India) . The goal is to create an ecosystem around ‘Open
Innovation’ that will meet the aspirations of the emerging consumers.
More information# http://www.manipal.edu/Institutions/InformationSciences/MCIS/Partnerships/Industry/Pages/BOP.aspx
# Unlocking new markets - Via sustainable innovation and design break-through (pdf)
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Protect & Gamble
The company spends 30% of its USD 1.9 billion R&D budget on designing products for low-income consumers. In some of their
research centers they have developed laboratories that recreate the natural temperature and humidity conditions found in
Mexico and China. The company’s researchers also spend time in people’s homes to understand how they live and actually use
products. The result has been a series of innovations, for example new versions of diapers to meet the special needs of low-
income households.
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Hewlett-Packard Company
Has set up a vision of ‘world e-inclusion’ (a project called Lincos) with a focus on providing technology, products, and services
appropriate to the needs of the world’s poor. HP has entered into a venture with the MIT Media Lab and the Foundation for
Sustainable Development of Costa Rica to develop and implement ‘telecenters’ for villages in remote areas. Bringing such
technology to villages makes possible a number of applications, such as tele-education, telemedicine, microbanking, agricultural
extension services.
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Co-creating Innovations For BOP
Successful BOP strategies are based on local adaption
New models of collaboration are as important as new business models : firms need to co-invent
solutions with local partners
Companies need to collaborate with nontraditional and unconventional partners, such as local
NGOs, local entrepreneurs, development agencies and local governments
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Designing Solutions Together With A Local Partner- Networks
Example# Kilimo Salama, an index-based insurance for East-African small-scale farmers that covers farmers’ inputs in the
event of drought or excessive rainfall.
Problem! Excess rain or drought can ruin the harvest of subsistence small-scale farmers. Farmers traditionally have little
access to formal banking services to save their incomes or to borrow to overcome weather-related shocks.
Development
process! Syngenta, a large Swiss agri-business company, provided a donation to its Syngenta Foundation for
Sustainable Agriculture (SFSA) to develop products to support small-scale farmers in developing countries.
SFSA developed the idea and created a local partnership network to build the product and concept: UAP
Insurance provides the insurance services and the Kenya Meteorological Department provides the weather
forecasting equipment’. The insurance is sold via Syngenta’s stockist network and the product is distributed and
implemented by Safaricom-mobile network as a mobile application. Kilimo Salama is further supported by the
Global Index Insurance Facility, a program managed by IFC to facilitate the expansion of the product globally.
Outcome! The product was piloted in March 2009 and based on user feedback more features have been added and
different versions developed. It currently serves more than 12,000 farmers.
More information# Kilimo Salama – Index-Based Agriculture Insurance - A Product Design Case Study (pdf)
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European SMEs Innovating For The BOP
Access2Innovation, Denmark
An open innovative partnership between NGOs, universities and companies:
Danish NGOs in the target countries identify concrete problems within the focus areas
Researchers participate with research and innovative methods and technologies to solve the problems
Companies support hands-on business development and international networking
More information# www.access2innovation.com
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From Partnership Arrangements To Business And Innovation Ecosystem Creation
From the company’s point of view, an ecosystem can be understood as communities or
networks of interconnected, interdependent players whose actions will determine whether or nor
the company’s business models will succeed and generate impact at scale.
Developing a business model is not enough, the key is how it is implemented into the larger
ecosystem together with various other players.
Engaging the ecosystem is critical, because companies often lack the resources and capabilities
required to overcome the barriers to scale on their own.
Different actors are having different roles and actions in the whole ecosystem, for example:
• Awareness-raising, capacity-building, research, information-sharing, public policy dialogue, and
creating new organizations.
For companies the questions are, for example:
• How to be involved and create (their own) ecosystems and improve them?
• Is it possible to manage the ecosystem? Or is just managing different collaboration arrangements
with different players?
For innovating, how to generate, adapt and exchange knowledge and other resources within in
the ecosystem?
More information on Inclusive Business Ecosystem: http://www.hks.harvard.edu/m-rcbg/CSRI/
publications/report_47_inclusive_business.pdf
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Different Roles In The Business And Innovation Ecosystem
Who? How? Why?
Individuals Purchasing goods and services as consumers Best knowledge of market
Providing goods and services as producers Cost savings for the company
Investing in businesses and engaging in other Creation of employment
activities as employees and entrepreneurs Increase in development impact
Cooperating with local people probably
necessitates training
Local Communities As micro-entrepreneurs and service producers to Increases credibility, accessibility and offers captive
be responsible of distribution: engaging consumer base
community people in the distribution channel, Have the information and ability to monitor and influence
marketing and selling what happens on the ground
As owners and investors: community-run Acting as ‘local base support’: Community support is
entrepreneurship models for bigger investments essential for the long-term successfulness
Local companies Share market information and distribution Management and technical expertise
channels In-depth knowledge on local needs and spending
Develop products and services together patterns to tailor solutions
Commercialization of products and services Local distribution networks and ‘last mile’ market access
Reduced transaction costs
Enhanced local economic and social development
benefits
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Nongovernmental Companies can consult NGOs on local needs Have extensive networks in BOP communities
organizations and markets Have a good understanding of local conditions and the
Companies and NGOs can cooperate in the real needs of the target group and are able to adapt
(NGOs) creation of a local value network and train local offerings to suit the local conditions
entrepreneurs Have used educated people
Companies and NGOs can create trust together Have gained trust in the communities
Cooperation forms can include distribution, Setting environmental and social standards
marketing, consumer education and training, and Changing social and cultural norms
microfinance Informing government policy reform
Creating training facilities
Governments and Companies can participate in public sector and Can offer scale
intragovermental IGO programs and projects Adopting new policies and regulations
Adopting new policies and regulations, adjusting Adjusting tax codes
organisations tax codes, and improving public services Improving public services
(IGOs)
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Who? How? Why?
Business Information sharing Providing services such as information or access to
associations, Access to markets markets to their members, and representing member
Lobbying and representing member interests interests towards others – above all the government
cooperatives,
unions, standard
bodies and other
intermediaries
(Foreign) Provide infrastructure Engaging in R&D
companies Exercise leadership in ecosystem Commercializing products and services
Training local actors on technological knowledge Purchasing from and selling to other companies
and business development Investing in operations and infrastructure
Providing access to wider market Creating standards
Providing financing solutions Competing against other companies
Lobbying the government
Academics and Share market information and distribution Undertaking on basic research that will ultimately benefit
other research channels all players in a market
Develop products and services together Analyzing what works and what doesn’t in either the
institutions (both Commercialization of products and services business or policy spheres
local and foreign) Educating future leaders Creating knowledge that other actors may have neither
the time nor incentive to do, and making sure it is
disseminated.
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Public and private Provide seed capital Building the capacities of local actors
donors Offer business development knowledge Providing catalytic financing to companies and
Share the risks with the companies entrepreneurs
Advising governments on how to improve market
environments.
The media and Awareness raising Raising awareness
other trend-setters Information-sharing Influencing social and cultural norms
Creating momentum for change Providing information
Creating momentum for change
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The Finnish Context
Intro
In this chapter we discuss what business opportunities BOP presents for Finnish companies and
what kind of resources are available for them in Finland.
What this all means for Finnish companies.
Potential business opportunities for Finnish Industries.
Some Finnish companies interested in BOP.
Consider new paths of innovating.
Finnish network of actors involved in inclusive business development.
Other useful resources.
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What This All Means For Finnish Companies
Finnish companies can be certain of one thing: if they don't develop solutions for the BOP,
someone else surely will do so.
Several Finnish companies posses knowledge and have technologies that are needed in the
BOP market, may not realise that or know how to enter the markets.
Finnish SMEs most likely don’t have sufficient resources to set up their own R&D centres in
emerging countries, therefore finding a more cost-efficient way of designing and planning to do
business at the BOP is needed.
Here we give some thoughts on where to start looking for local partners and creating your own
way of innovating.
We also present the resources that are available to Finnish companies interested in the BOP.
Aalto University BOP research group
Doing Business at Emerging Markets: Guide for Inclusive Innovation
70. !"#$% Structure Of The Guide
&#%'"# About Base of Pyramid Innovative Business Solutions Designing Business Models
()*"+$ Methods Of Innovating The Finnish Context References
Potential Business Opportunities For Finnish Industries
Cleantech solutions: More than 200 Finnish companies belong to the Finnish Cleantech Cluster.
The BOP is a good context for creating ‘leapfrogging’ technologies for energy access. Market
opportunities are huge especially for:
• Renewable Energy and Smart Grid solutions, such as small-scale electricity generation based on
solar panels or biomass.
• Water and Waste Management, such as filtering unclean water and ‘waste-to-energy’.
ICT and Mobile Solutions: Finland is known for its world-leading knowledge on ICT. Due to poor
infrastructure and lack of basic services, ICT can offer good ways to create cross-sectoral
solutions and there is space for ‘leapfrogging technologies’. Such as:
• Mobile Learning
• Remote telemedicine
Aalto University BOP research group
Doing Business at Emerging Markets: Guide for Inclusive Innovation
71. !"#$% Structure Of The Guide
&#%'"# About Base of Pyramid Innovative Business Solutions Designing Business Models
()*"+$ Methods Of Innovating The Finnish Context References
Some Finnish Companies Interested In The BOP
Currently a number of Finnish companies are interested in serving the emerging low-income
market in various geographical areas. Here we listed companies to keep eye on:
• Nokia has long experience on operating at the low-income market in different parts of the world.
Nokia has developed affordable phones and especially recently focused on developing mobile
applications for the BOP. Targeting the ‘next Billion’ Internet users is a key part of Nokia’s strategy.
• Fortum A key element in Fortum’s strategy is the pursuit of new growth opportunities particularly in
fast growing markets. As part of this. Fortum established an office in India at the beginning of 2012.
One possible growth initiative for the company is the rural village renewable energy solutions.
• Blaast is a mobile solution company targeting emerging markets and ‘the next billion users’ of the
internet who are most likely using it via their phones. Blaast is now operating in Indonesia where it
offers its services to users for a €1,28 monthly price.
• SibeSonke’s aims at serving billions of lower-income people in emerging countries through a mobile
service that does not require any phone upgrading or Internet data connection.
• Pajat is a mobile solution company whose mission is to provide affordable and useful mobile
solutions that are globally relevant. One of its leading products is PoiMapper, a mobile point-of-
interest (POI )data collection and sharing solution.
• TeleChemistry’s provides a rapid real time all-in-one clinical chemistry service – called AutoPocT-
which automatically processes samples to results without delay.
Aalto University BOP research group
Doing Business at Emerging Markets: Guide for Inclusive Innovation
72. !"#$% Structure Of The Guide
&#%'"# About Base of Pyramid Innovative Business Solutions Designing Business Models
()*"+$ Methods Of Innovating The Finnish Context References
• Earth House provides ecological, safe and low-cost housing especially used in developing countries
and after catastrophes.
• Naps Systems operates in the solar electricity systems business and delivers solutions to more than
140 countries.
Aalto University BOP research group
Doing Business at Emerging Markets: Guide for Inclusive Innovation